Saturday, 24 July 2010

Opinion
Written by John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=27999:buy-the-philippines&catid=28:opinion&Itemid=64

If you ask the average person and sometimes the average economist about the stock market, you should be prepared for a lot of negative comments. The general attitude, especially now a days, is that buying stocks is somewhere between buying lotto tickets and playing at the casino.

The stock market is different from any other investment vehicle for two reasons. An investment in shares is perhaps the only investment that is always instantly convertible into cash. No waiting to find a buyer for your investment. No contract signing, no lawyers, and a very visible pricing mechanism available to everyone. Further, the shares you buy represent a tangible revenue-generating asset; a functioning corporation that is doing business every day.

Why then would the stock market have such a bad reputation? Primarily because people who buy stocks do not have a clue about how to do it profitably. The biggest mistakes that the average investor makes is viewing stock prices as a mirror, a reflection of the current general business and economic climate rather than a predictor of future economic and business activity.

During the last quarter of 2008, the outlook seemed very bad for the world and the Philippines. This was a time of the depth of the world’s stock markets and a time when people were really starting to realize how bad things were and how bad things were going to become. Yet buying shares of Ayala Corp. at the end of November 2008 and holding that investment until now would have nearly doubled your money.

But that is Ayala and buying stock in a company like that probably always does well over the longer term. Who in his right mind back then would have bought shares of a bank, for example? Only someone who wanted to make a 100-percent profit. At the end of 2008, Banco de Oro traded at P22. Now it is selling at P45.

But even BDO may not be a fair example, as that company also is part of a very wealthy group. OK. How about Southeast Asian Cement? End 2008 price was P0.30; 2010 price nearly P1.

The Philippine Stock Exchange (PSE) has been a profit gold mine over the last 18 months. Megaworld from P0.65 to P1.50+. Pepsi-Cola Philippines from P0.85 to P2.85, Universal Robina Corp. started at P6 and is now P30. And maybe the most incredible profit generator—JG Summit—from P1.60 to P16.

Had you bought a weighted portfolio of all the companies listed on the Philippine Stock Exchange Index at the end of 2008, your investment would have increased by 80 percent.

So now in 2010, having missed one of the best market rallies in the history of the Philippine stock market, who would be crazy enough to buy now after prices have gone up so much? Only someone who wants to make a lot of money over the next 12 months.

Read what one foreign market watcher said last week: “Asia and other emerging markets are more upbeat. India and Indonesia made slightly new highs last week. The breakouts were only marginal. But Thailand and Philippines made clearly higher highs, suggesting a growing bull trend in Asia, giving hope for emerging markets and perhaps the global trend.”

Are you joking? Thailand just went through months of political chaos and everyone knows the Philippines is a basket case and yet these two stock markets may be the leaders of a positive global trend?

How in the world could anyone justify enthusiastic optimism about the Philippines and the Philippine stock market?

By the end of 2010, the Philippines will stand unique among the world’s nations (next to China, for example) by being foreign debt free. Well, we won’t but we could, if we wanted to. The Philippines will be holding enough foreign currency to pay off all of our government’s foreign currency-denominated debt. Think about that. After all these years, the Philippines does not have to owe the foreigners any money. Sure, the government will borrow domestically but that is a completely different proposition than being forced to borrow in the international financial markets just to survive.

The Philippines is so financially sound in the eyes of the global financial markets, that now the government can raise money, borrow and pay back the loans in pesos. Think about that, too. Foreigners are willing to loan us money payable in five years and be paid back in pesos! Yes we will pay a slightly higher interest rate than Japan, for example. But the global financial markets are not worried about a Philippine economic reversal or the peso dropping like a rock. Too bad more Filipinos do not feel that way.

This positive situation will have a very significant impact on the economy on everything from interest rates to direct foreign investment.

Another reason the stock market is going to continue to go up is that listed companies are making big profits. The combined net earnings of all PSE-listed firms increased by more than 100 percent in the first quarter of 2010. That’s good but this is better. Company revenues went up by 28 percent. That 28 percent shows the underlying strength of the Philippine economy. That revenue growth is not from the sale of assets. It is solid business growth. In this environment, when a local bank like Metrobank shows a 28-percent increase in profits in the first quarter, you know that the economy is sound and the financial system strong.

For 15 of the last 18 months, the PSE has gone up. Amid all the global gloom, Philippine politics and natural disasters, the stock market has not stopped its climb. And the climb is going to continue, through the highs of 2007 and beyond. How far you ask? Based on the Price/Earnings Ratio (PER), many prices of shares on the PSE could double and more.

Tuesday, 20 July 2010

Written by John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=27892:making-global-investment-easier&catid=28:opinion&Itemid=64

It can be difficult to understand the reality of the world today. We are flooded with information, but too much of that information is contradictory and biased.

It is actually no different here in the Philippines, as the media attempt to simply plug the Philippines into the global situation without looking deeper to understand the reality.

An example. The $4-trillion global-outsourcing business is going to be stagnant in 2010. The call-center business alone is estimated at $1 trillion per year. From that fact, it would be easy to draw conclusions about the Philippine outsourcing industry, primarily that business is going to suffer here. But that conclusion would be wrong. The Philippine industry will grow by 20 percent at the minimum in 2010.

An article from the international financial press lists India first and China second in outsourcing-industry revenue. Those numbers are distorted also, since a large portion of China’s “outsourcing” business is domestic not international. Chinese companies outsource much of their customer service to other domestic firms.

While it is true that the global call-center business is not growing like in the past decade, the Philippines sector is looking at a boom year, with call-center companies scrambling both to open new sites and attract qualified employees. Speaking of employees, which company is the largest private employer in the Philippines? Philippine Long Distance Telephone? San Miguel Corp.? Shoemart?

The largest private employer in the Philippines is Convergys Philippines, a call-center operation. And in 2010, Convergys will expand its work force by nearly 20 percent, while increasing operations at five of its existing 12 call- center locations.

It is important for people to know the truth, the specific truth, rather than to rely on broad and often incorrect generalizations about the economic world.

Nigeria, a relatively new outsourcing player, is building an economic plan for the country, called Vision 20-20-20, based heavily on outsourcing. Read this from AllAfrica.com: “Vision 20-20-20 is the whole set of Nigeria government strategy to position Nigeria economy to be a world-class economy and world power by 2020. Of this whole set of strategy; the role of outsourcing is enormous and critical to the success and realization of vision 20-20-20 goals. To ensure that Nigeria becomes a potential emerging destination of outsourcing, there is a need for the federal government to establish Nigeria Outsourcing Agency.”

Another emerging participant is Egypt. “At the first European Outsourcing Association Awards held earlier this month in Brussels, Egypt was awarded the title of Offshoring Destination of the Year.”

Egypt built a business center 20 minutes from the capital Cairo, primarily to service the needs of prominent multinational and local companies in the field of telecommunications and information technologies. Started in 2003, Cairo’s “Smart Village” caters to IT service companies; the thrust now is to attract multinational call-center operations. The key to Smart Village is that it is designed as a contained business park, with residential and commercial facilities, as well as all appropriate government agencies, to service the global companies setting up shop there.

Look at a typical Philippine call-center account. This account has 500 tax-paying employees earning at least P15,000 a month. The account remits a minimum of $3 million to P4 million per year into the Philippines to pay for rent, power, salaries and the like. But, of course, Philippine call centers are certainly not the solution to the country’s economic problems.

The point, though, is that the government has not focused a master plan even on the outsourcing business that is so important. A project similar to Egypt’s Smart Village could have been in operation long ago, with all the necessary infrastructure, including low-cost employee housing and other support facilities. Instead, these global companies doing business here are forced to roam the provinces looking for locations with adequate infrastructure. One call-center company actually flies prospective employees in from all parts of the Philippines to work in Manila. Other companies pay large bonuses to get employees from Manila to work at their provincial locations. All of this is wasteful and unproductive, and will eventually make the Philippines less competitive.

The Asian Institute of Management recently said, “the government must remove focus on the grant of incentives as investors are more interested on the ease of doing business in the country,” and that is exactly right.

Financial incentives are important, but they are only one of several factors that are essential. In a mere seven years, over 120 companies have relocated to Smart Village, employing 28,000. Within five years, 500 firms will set up, giving jobs to 100,000. Smart Village’s vision is very simple. “To offer a hassle-free business environment.”

The Philippine government must start thinking like private enterprise, instead of like government-policy “experts.” “What do private companies need?” rather than “How can government benefit?” Properly managed, the government can do almost anything. It’s the government!

Government support for the Philippine outsourcing industry has been disorganized and piecemeal through the years. There is not any Master forwarding thinking plan. Too much of the success of our outsourcing business has been in spite of the government, and not because of the government.

Two proposals should be implemented immediately to make this business a little more hassle-free. Employees should have reduced or eliminated income tax on nighttime differential wages as an incentive to work in the dark. Financial incentives should be provided to transportation companies that provide safe and convenient transportation for call-center employees who must travel at night, including setting up transport hubs in the metropolis.

The Philippines is a positive to profit and take advantage of the global economic situation. This will happen when the government creates a specific economic vision, and not just another feel-good nonproductive political statement.

The Philippines is now the country of choice for airline companies requiring expertise in aircraft maintenance, repairs, and overhaul, as it provides quicker turnaround at much lower costs.

Lufthansa Techniks Philippines (LTP), a state-of-the-art aircraft “maintenance, repair and overhaul” (MRO) center has overtaken its much bigger competitors in Hong Kong and Singapore in terms of confidence and preference by international airline companies.

The world-class facility, which sits at the eastern end of the Ninoy Aquino International Airport’s main runway, is run by 2,700 locally trained Filipino aircraft mechanics. The maintenance center has five service bays that can accommodate various sizes of aircraft that need to undergo the required heavy maintenance or overhaul procedures at any given time.

The transfer of technology from its German partner to the Filipino mechanics has also armed LTP with the much-needed tooling and expertise in performing specialized maintenance procedures for the Airbus Industrie airplanes.

With their extensive tooling and expertise on Airbus airplanes, LTP has been rated as one of the best MROs in the region resulting in being the choice of more than 23 airline companies, including Virgin Atlantic, Cathay Pacific, Air Asia, Qantas Airlines, and flag carrier Philippine Airlines.

The expertise of the Filipino aircraft mechanics on Airbus Industrie airplanes has resulted in quick turn-around times for heavy maintenance procedures.

LTP Vice President for Marketing and Sales Dominik Weiner-Silva said their mechanics can usually perform a complete “heavy-maintenance procedure” or “D-check” on an Airbus Industrie aircraft in 25 days – five days less than the 30-day industry standard.

“A faster turn-around time means more money for the airline company,” Weiner-Silva said.

Aside from the technical competence of our mechanics, our competitive cost is also a big factor why airline companies choose us over other MROs in the region,” Weiner-Silva explained.

Weiner-Silva said the Philippines is now on the global aviation map as a prime source of MRO services. “We now belong to the ‘first league’ of approved MROs worldwide putting the country in the global aviation map.

“Because we are recognized worldwide, we help put the Philippines in the global aviation map as a source of top MRO services and we take pride in our Filipino workers who are now sought internationally for their world- class expertise,” Weiner-Silva said.

“Filipinos are passionate, hardworking, and very talented; that is why it is not uncommon to find them in other country as trainers now whereas they were trainees not too long ago,” Weiner-Silva added.

Weiner-Silva noted that aside from being a member of the pioneer league of approved MROs, LTP also enjoys the approval from major airworthiness authorities such as the European Aviation Safety Agency (EASA) and the Federal Aviation Agency of the USA, which he said, enables LTP to compete globally.

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